European Debt Crisis

ECB cuts off funding to some Greek banks

Stephen Beard May 17, 2012

David Brancaccio: German Chancellor Angela Merkel has sent a message that she is committed to keeping Greece in the eurozone. In an interview with CNBC, Merkel says she is open to stimulus programs at a time that Greeks are blaming austerity imposed by Europe for their woes. That said, the European Central Bank is keeping Greek banks on a tight leash, cutting off funding for some.

Marketplace’s Stephen Beard reports from London.

Stephen Beard: Could this be the beginning of the end for Greece’s euro membership? If the European Central Bank stopped providing funds to the country’s whole banking system, Greece would crash out of euroozone — it would run out of cash. And it would have to start printing its own currency just to stop the economy collapsing.

Now we are not there yet. The European Central Bank has not cut off funding for all Greek banks — just to four of them. But the fact it has taken this step at this sensitive time could be significant.

Peter Thal Larsen of Breaking Views says it could be a warning shot  to Greek voters ahead of next month’s election.

Peter Thal Larsen: If  you choose a party that is not prepared to abide by the terms of the bailout , then we will cut you off and you will have to leave the euro.

Some analysts say the central bank’s action is only technical and temporary. But shouldn’t the Bank be cutting Greece some slack, instead of cutting its funding?

In London, I’m Stephen Beard for Marketplace.  

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